Star Media Group and pipe-maker JAKS Resources Bhd’s dispute over the delayed completion of a 15-storey office tower (Tower A) in Pacific Star Business Hub at Section 13 in Petaling Jaya originates from a controversial development agreement (JDA) signed in 2010.
First, the preliminary agreement invited scrutiny as it was inked three weeks before the presidential election of Malaysian Chinese Association (MCA), a key member of the Barisan Nasional (BN) coalition that holds a controlling stake of 40 percent in Star Media.
In that election, wherein three persons competed for the top position, Tan Sri Chua Soi Lek emerged as the winner. This resulted in changes to the board and management of Star Media.
Second, the company was criticised for appointing pipe-maker JAKS to carry out the major project as it had no proven track record in real estate development. Interestingly, Star Media could have opted to undertake the project on its own as it had amassed nearly RM700 million in cash reserves at that time.
Third, Star Media and JAKS had previously intended to loan RM50 million from banks to partly fund the development. This was considered peculiar as the former owns the site measuring 24,568 sq m.
Given the aforementioned controversies, the JDA was revised in August 2011. Under this, Star Media disposed the land to JAKS for RM135 million in cash and in-kind, namely in the form of Tower A.
To make sure that the property would be finished and turned over to Star Media on time, JAKS was required to commit to a RM50 million bank guarantee.
Under the deal, Tower A must be ready within three years after JAKS obtained vacant possession of the land. If the latter cannot fulfil this, the contract would be automatically extended by 12 months but the builder will have to pay an additional eight percent interest to Star Media.
But in a filing with Bursa Malaysia on Tuesday (20 February), Star Media asked for the RM50 million bank guarantee and declined to provide an extension to JAKS. This is because the project had been delayed for two years and JAKS failed to deliver Tower A on 15 February 2018.
On the other hand, JAKS applied for an injunction from the High Court to prevent the banks from releasing the money to Star Media. It argued that it should be given an extension as Star Media’s request to change the building’s design also contributed to the delay.
Meanwhile, an insider revealed that Star Media had asked JAKS to address some defects in Tower A. “But I don’t think that amounts to changes requiring over two years’ delay,” said the source, adding that the hub’s remaining commercial and residential parts are still incomplete.
Furthermore, Tower A should have been completed and delivered in late-2015 or early-2016, as the development plan for the entire hub was approved by the Petaling Jaya City Council (MBPJ) in August 2012. Construction should have only taken three years as it commenced in end-2012.
Pacific Star Business Hub is a mixed-use project with a gross development value (GDV) of RM1.1 billion, a far cry from its initial estimated GDV of about RM370 million.
At present, it consists of a podium, a 15-storey office tower, a 17-level building for commercial and educational purpose, two 25-storey residential blocks and a 34-storey apartment building.
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